Monday, 3 April 2017

Defence Minister Arun Jaitley is looking to solve a problem
that thwarted his predecessor, Manohar Parrikar, throughout his 28 months in
office.

On Monday, the defence ministry’s apex procurement body, the
Defence Acquisition Council (DAC), chaired by Jaitley himself, will try to
arrive at an acceptable way of nominating “strategic partners” (SPs) ---
private companies, nominated by the defence ministry as chosen production
agencies for defence equipment.

Private defence industry and companies hoping to enter this
risky field are watching carefully to see whether the SP policy will corner
defence production for a handful of big players, or leave space for others to
share the profits.

The SP policy aims to boost Prime Minister Narendra Modi’s
“Make in India” thrust by harnessing private industry to galvanize defence
production and create manufacturing jobs. Pushing through the SP policy would
fetch Jaitley kudos from Modi, and set him above Parrikar who failed to do so.

Under Parrikar, the ministry published its Defence
Procurement Policy of 2016 (DPP-2016) with a blank space where Chapter VI ---
the SP policy --- was meant to be.

However, persons who have briefed Jaitley on the challenges
of the SP policy say he has, much like his senior bureaucrats, reservations
over allowing private firms to benefit from being “nominated” for a defence
contract, without competitive selection.

Jaitley’s challenge in Monday’s DAC meeting, say sources
familiar with the internal discussions on the SP policy, will be to introduce
an element of competition into the nomination of private companies as SPs.

The thought process on SPs traces its roots back to the
Kelkar Committee, which, in 2005-06, suggested nominating a set of financially
deep-pocketed, technologically capable private sector firms who would be titled
Raksha Udyog Ratnas (RuRs). These RuRs could bid, on equal terms with the
privileged defence public sector undertakings (DPSUs), for developing and
building defence platforms for the military.

The RuR policy, however, was stillborn. Then defence
minister, AK Antony, buckled under the pressure of DPSU unions who feared job
losses as robust private sector firms muscled onto their turf.

In 2015, the National Democratic Alliance (NDA) government
resurrected the notion of selecting private firms as preferred partners for big
defence projects. The MoD-constituted Dhirendra Singh Committee (2014-15); and,
subsequently, the VK Aatre Task Force (2015-16) recommended designating one
private sector firm as the SP for each of seven technology areas --- aircraft;
helicopters; aero engines; submarines; warships; artillery guns, and armoured
vehicles. It also recommended selecting two SPs each for three other technology
segments --- metallic material and alloys; non-metallic materials; and
ammunition, including smart munitions.

But as Parrikar tried to push an SP policy through the
ministry, it predictably stalled on renewed opposition from DPSUs, backed by
Parrikar’s own department that oversaw the DPSUs --- the Department of Defence
Production (DDP).

Additionally, bureaucrats in the Department of Defence
(Finance), who like to assume a regulatory role, were apprehensive about the
possibility of future allegations of bias in nominating SPs.

Opposition also came from medium, small and micro
enterprises, who argued that only they would facilitate high-technology
indigenization, not the large private firms with manufacturing capability but
no high-technology expertise.

These smaller companies were left out of SP contention by
the Aatre Committee’s recommended eligibility criterion of at least Rs 4,000
crore in annual turnover.

There is broad pessimism about Jaitley being able to cut
through this Gordian knot at the DAC on Monday. However, insiders believe he
will try to introduce an element of competition in the nomination of SPs, which
would enable price discovery and avoid allegations of arbitrariness and bias.

The solution being pushed, say ministry sources, is to
appoint select firms along the lines of RuRs, who will be eligible not just for
one field, like aircraft or submarines, but for multiple fields. With at least
two chosen SPs competing with each other for each MoD contract, the competitive
element would have been retained in the policy.

Says a ministry insider: “I don’t expect the new defence
minister to make hasty decisions within a month of taking over, but there is
strong pressure from the Prime Minister’s Office. The 2019 elections are just
two years away. The PMO wants to get going."

2 comments:

Jayant M
said...

In this day and age of internet speed, our policy making proceeds at glacial pace no matter how much a reform minded minister pushes through! We haven't been able to formulate a policy on this for the last decade!!!. Truly boggles the mind and yet we wax eloquent about 'strategy' and such like while our adversaries move ahead with speed (for e.g., China's impressive naval vessel construction speed).

If we lose additional territory to China in the near future we would all hang our heads in shame at the deleterious impact of our dilly dallying in taking a firm and quick decision.